A few quick, interesting facts about a different topic each entry. It's like an apple a day: pleasant, good to have, and pocket-sized.

Monday, October 5, 2009

Apple #414: Those Halloween Stores

The other day I noticed somebody out on a busy street corner holding up a sign and sort of dancing around to get people's attention for one of those big Halloween stores. You know the kind, the ones that move into an empty store space for the month before Halloween, sell a whole bunch of stuff, and by November 1, they've packed up and moved out.

I wondered, how do those things work? They must be profitable or they wouldn't show up again the next year, nor would there be another store in a different location. But what kind of profits are we talking about here?

A typical Halloween Express storefront. You can see that the banner with the store name on it is temporary. This one is in Charlotte, North Carolina.(Photo with some rights restrictions by english invader on Flickr)

The answer, according to what I read, begins with understanding what the market is like for Halloween goodies.

THE MARKET

In the US in 2006, consumers spent $4.96 billion on Halloween stuff. That's a lot of money on costumes and candy.

To put that number in perspective, though, we Americans spent 100 times that -- $457.4 billion -- on the Christmas/Hanukkah holidays.

In fact, Halloween weighs in at only the sixth-highest spending holiday of the year, after Christmas/Hanukkah, Valentine's Day, Easter, Mother's Day, and Father's Day.

People spend more on those other holidays because those holidays all involve gift-giving. Except for the candy that people hand out to trick-or-treaters, nobody gives gifts for Halloween, which is why the holiday falls relatively low on the money scale.

But in terms of decorations, it comes in second place just behind Christmas. 86% of adults decorate their houses for Halloween, both inside and out.

Some people really get into the Halloween decorations. This is outside a house in Lenox Hill, New York.(Photo by Tim Ruddell on Flickr)

Candy is perishable but costumes and decorations are not and those have higher profit margins anyway. So the retail stores focus on those products and focus hard.

Of all the retailers who sell Halloween stuff, it's the companies that operate at least 100 of those big, temporary stores that bring in the majority of that $4.96 billion.

They start looking for store locations in January -- 10 months ahead of time. Most of these retail companies have a pretty specific set of criteria for the kind of location they want.

Halloween Express, one of the leaders in this group of Halloween retailers, looks for:

Space in a strip mall or in a free-standing location

Has to be at least 7,000 square feet

Has to be in a high traffic area near busy streets

Has to be available for all of October

Has to allow temporary signs to be put up

Will pay more than the current rent

How much is more than the current rent? It varies depending on the city and the specific location. But for one store front, Halloween Express paid $100,000 per month ($200K total) for a 20,000 square foot space.

Most retailers pay $500,000 for a whole year in that same size space.

But that high rent may be worth it. Halloween Express, as an entire chain, sold about $70 million worth of Halloween stuff in 2007.

For a lot of malls that are struggling due to the bankruptcy and closure of a lot of major retailers (Linen 'N' Things, Mervyn's, MicroCenter, to name a few), a tenant that's willing to take over a huge amount of space and pay higher than the going rent even for a couple of months can be very attractive.

Spirit Halloween stores are owned by Spencer's. This location opened in a former La-Z-Boy store.(Photo from the Spree Patrol)

A Halloween store will bring more foot traffic to the mall in general, but only for the couple months it's open. So the Halloween stores are a temporary stopgap, but if a commercial realtor has the chance to put a longer term store in that space, they'll opt for that over the Halloween store.

Once the location is secured, somebody local -- a franchisee -- operates the store. That person is responsible for managing the rest of the details, including the inventory and the staff.

THE MONEY

The individual franchisee operates the store. They invest $10,000 to buy the rights to the first store and then an additional $70,000 to pay for the inventory and any other opening costs.

Ordering the inventory is the trickiest part of the business. The franchisee has to go to trade shows, decide which costumes and masks will be hot that year, and order them at the right time so everything will be delivered, unpacked, and on display in the store by the time it's ready to open.

Some of the stuff the clerks would have to unpack and display. These decorations were available in 2008 at a Spirit Halloween store in New Mexico.(Photo from Season of Shadows)

The franchisee also hires cashiers and people to unpack the inventory and set it out on the shelves. Once the store is open, the franchisee is also in charge of managing it. This means showing up, answering questions, solving last-minute problems, making sure everybody's there when they're supposed to be, making sure things are set up the way they're supposed to be. But really, how hard can that be?

So let's do some quick math here. Let's pretend we Daily Apple readers want to open one of these stores. Our investment is $80,000 for the rights to the store and the inventory, plus salaries.

Salaries wouldn't be that expensive. All you'd have to pay would be minimum wage for people to run the cash registers. You wouldn't have to pay any benefits because the employees would only be working for two months.

Minimum wage is $7.25 per hour. Say we have 25 people working 8 hour days. Say the store is open 7 days a week. Our staff wouldn't all work 8 hour days 7 days a week, but to make the math easier, let's say they do. And let's say we're generous and we're going to pay our cashiers and stockers $8 per hour. That's $89,600 in salaries.

So we've got $179,600 invested total.

Let's say our store is an average Halloween Express store. Since they made $70 million and they have about 100 stores, that would put an average store's sales at about $500K.

Even if we assume that our rent is that really high $200K, that still leaves us with a profit of $120,400. Not bad for a few months' worth of work.

That $120K profit that I arrived at should definitely be taken as an estimate. Because I've also read that the temporary Halloween store usually does not make a profit its first year.

But the temporary Halloween store typically does turn a profit by its second year. This is very fast for retail. Most retail stores don't turn a profit until somewhere in their third or even fifth year.

Here's another benchmark: if one of these pop-up Halloween stores sells 70% of its inventory, it's considered to be doing well. So the next time you're in one of those giant stores, look around and say to yourself, "Seventy percent. They're going to sell seventy percent of everything that's in here." I think you'll be able to feel the money.

Costumes are where the profits can be at their highest. Though they're typically made of polyester and plastic, most costumes start at around $24 and go up to about $180 for a complete outfit with lots of trimmings. The risqué costumes, which are increasingly popular with adults, typically start around $80 and go up.

Prime example of the sort of costume most in demand these days. It's for adults, it's of the "sexy" variety, and it's of a witch.(This particular costume is available from HalloweenMasksandCostumes.com. But I bet you could also find it in one of those big stores, too.)

Besides the top categories, there are also usually one or two specific costumes that are "hot" in a given year. During an election year, for example, costumes or masks that look like the current candidates are usually big sellers.

Or if a movie is especially popular, so are costumes that look like those movie characters. Like after Scream came out, for example, everybody was wearing those elongated masks.

None of the Scream masks I saw online get the contorted mouth shape exactly right. This one is available from Costume Maniacs for $7.99.

This year, because of the economic downturn, most people say they're planning to re-use costumes from previous years, or make their own, or they're going to make their own decorations and treats to hang up or hand out.

In fact, the average adult plans to spend about $55 each year on Halloween goodies. That's gone down from about $100 per consumer per year in the late 1990s.

The average 18-24 year-old spent $86 on Halloween in 2008, and they say they'll spend less than that this year -- only $68.

So maybe those stores will only sell, what, sixty percent of their inventory?

After seeing how much money these stores rake in so quickly, I am definitely seeing the do-it-yourself appeal. On the other hand, those ready-made costumes sure do come in handy if you find out only a day or two ahead of time that someone you know will, in fact, be having a Halloween party and you need a costume that's better than the sheet with holes cut out for eyes that you wore last year.

The best place I ever bought a costume was at a costume shop that served the local theater and ballet companies. This store had everything. The best were the masks -- tons of them all around the top of the walls, really fantastic, elaborate, sometimes gory, truly scary.

The people who worked there knew their make-up, too. You could say to the guy behind the counter, "How do I make myself look like Frankenstein?" and he would tell you which colors of make-up you needed to buy, how much of each color to apply, and where. He would tell you how to glue on the fake bolts, how to make the top of your head stick out, and how to make the stitches all the way across. I heard one customer ask one of the make-up guys how he could make himself look like a monster that had been melted in a nuclear accident, and right away the make-up guy had all kinds of ideas. Super knowledgeable and creative people.

Sadly, that store closed several years ago. But if there is such a store in your neighborhood, it is definitely worth the trip. Here is a short list of theatrical costume shops, most of which also specialize in things like fake beards, or hand-made corsets, or Zoot suits, or mascot suits.

Storefront of DC Theatricks in Buffalo, NY. Not as screamingly eye-catching as those big temporary stores, but based on what lots of people online say about them, they have a huge selection of costumes for purchase or rental, and the sales people are friendly and helpful.(Photo from Buffalo Place)

According to your your figures $70,000 inventory70% of $70,000 inventory is $50,000you are saying $50,000 costing inventory sells for $500,000??? i think your numbers are funny.It's more like $125,000 and that is if you are lucky enough to sell that much.

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